Case Name  

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY v. NATIONAL

TELECOMMUNICATIONS COMMISSION

Topic Stock Dividends

Case No. / G.R. No. 152685/4 December 2007
Date
Ponente VELASCO, JR., J.
Doctrine

Relevant Facts:

 This case pertains to Section 40(e) of the Public Service Act (PSA), as amended on March 15,
1984, pursuant to Batas Pambansa Blg. 325, which authorized the NTC to collect from public
telecommunications companies Supervision and Regulation Fees (SRF) of PhP 0.50 for every PhP
100 or a fraction of the capital and stock subscribed or paid for of a stock corporation,
partnership or single proprietorship of the capital invested, or of the property and equipment,
whichever is higher.
 Under Section 40(e) of the PSA, the NTC sent SRF assessments to petitioner Philippine Long
Distance Telephone Company (PLDT) starting sometime in 1988. The SRF assessments were
based on the market value of the outstanding capital stock, including stock dividends, of PLDT.
PLDT protested the assessments contending that the SRF ought to be based on the par value of
its outstanding capital stock. Its protest was denied by the NTC and likewise, its motion for
reconsideration.
 PLDT appealed before the CA. The CA modified the disposition of the NTC by holding that the
SRF should be assessed at par value of the outstanding capital stock of PLDT, excluding stock
dividends.

Issue: Whether or not the value transferred from the unrestricted retained earnings of PLDT to the
capital stock account pursuant to the issuance of stock dividends is the proper basis for the
assessment of the SRF?
Ruling: NO. In the case of stock dividends, it is the amount that the corporation transfers from its
surplus profit account to its capital account. It is the same amount that can be loosely termed as the
trust fund of the corporation. The Trust Fund doctrine considers this subscribed capital as a trust fund
for the payment of the debts of the corporation, to which the creditors may look for satisfaction. Until
the liquidation of the corporation, no part of the subscribed capital may be returned or released to the
stockholder (except in the redemption of redeemable shares) without violating this principle. Thus,
dividends must never impair the subscribed capital; subscription commitments cannot be condoned or
remitted; nor can the corporation buy its own shares using the subscribed capital as the considerations
therefor. When stock dividends are distributed, the amount declared ceases to belong to the
corporation but is distributed among the shareholders. Consequently, the unrestricted retained
earnings of the corporation are diminished by the amount of the declared dividend while the
stockholders equity is increased. Furthermore, the actual payment is the cash value from the
unrestricted retained earnings that each shareholder foregoes for additional stocks/shares which he
would otherwise receive as required by the Corporation Code to be given to the stockholders subject to
the availability and conditioned on a certain level of retained earnings. In essence, therefore, the
stockholders by receiving stock dividends are forced to exchange the monetary value of their dividend
for capital stock, and the monetary value they forego is considered the actual payment for the original
issuance of the stocks given as dividends. Therefore, stock dividends acquired by shareholders for the
monetary value they forego are under the coverage of the SRF and the basis for the latter is such
monetary value as declared by the board of directors.